Several leading financial newsletter advisors see upside potential in select food and beverage stocks. Here these contributors to MoneyShow.com look at a casual dining, pizza and burgers, as well as alcoholic beverages and a variety of craft beer makers.
Ned Piplovic, Dividend Investor
Founded in 1975 and based in Dallas, Texas, Brinker International (EAT) , owns, operates and franchises nearly 1,700 casual dining restaurants in 31 countries and two U.S. territories. Almost 97% of the current restaurants operate under the Chili's Grill & Bar brand, with the remaining 3% under the Maggiano's Little Italy name.
The company's current quarterly dividend distribution of $0.38 per share is 11.8% higher than the $0.34 per share quarterly payout from the same period last year. This payout converts to a $1.52 annualized distribution and a current yield of 4.3%, which is 60% higher than company's 2.7% average yield over the past five years.
The current yield exceeds the average yields for the restaurants sub-segment by about 130%. Brinker has missed a dividend hike only once since it started paying dividends back in 2005.
Over the past 13 years, the company has seen a 14.3% average annual growth rate and has increased its total annualized dividend payout 470% since 2005. The result of compounding annual payouts at nearly 15% for nine consecutive years is a 245% total annual dividend payout enhancement between 2010 and 2018.
Brinker International currently distributes 55% of its earnings as dividends, which indicates that the company should be able to continue supporting a 14% to 15% annual dividend hike.
Additionally, the company released its quarterly financials on Jan. 30, 2018 with mixed results. Total revenues were 0.6% lower than analysts' expectations, who were expecting the same revenue results as the same period last year.
The company's 14.9% operating margin was slightly lower than the 15.1% for the same quarter last year. However, the $0.87 quarterly earnings per diluted share outpaced the expectation of $0.72, an outperformance of nearly 21%.
Bob Ciura, Wyatt Research's Daily Profit
Diageo (DEO) is a giant in the alcoholic beverages industry. It manufacturers some of the most popular spirits and beer brands in the world, such as Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, Guinness, Crown Royal, Ketel One and more.
Diageo has 20 of the world's top 100 spirits. Diageo's strong brands provide the company with the ability to raise prices each year. Combined with global scale, the company is a cash machine: Diageo's free cash flow increased 27% last year.
The company also has a strong foothold in the emerging markets, which gives it an edge over its U.S.-based competitors. More than 40% of Diageo's annual sales are derived from Asia, Latin America, and Africa. Diageo has a semi-annual dividend, which yields 2.2%.
The firm makes up for a relatively low yield, with high dividend growth rates. The final semi-annual dividend payment last year was raised 10% from the same dividend the previous year.
High growth from the emerging markets can easily continue to provide for 10% dividend increases each year, enhancing its position as one of the attractive international dividend stocks.
Josh Selway, Schaeffer's Research
Fast-food stock Wendy's Company (WEN) will try to extend its upward momentum after the shares jumped 4.1% recently on a well-received quarterly update. WEN is facing off against a round of mixed analyst attention, though.
While BMO upped its price target on the stock to $20 from $17, SunTrust Robinson trimmed its target to $21 from $22. Of course, this latter mark still represents territory not seen since early 2007. Ten of 15 covering analysts had Strong Buy ratings in place on the equity.
The shares were last seen trading at $16.88, not far from their Jan. 10 decade-plus high of $17.66. Overall, Wendy's is up 23.3% during the past year. The stock saw strong support from the 200-day moving average during the recent market turbulence.
But many are skeptical the security's technical success can continue. Specifically, short interest increased by 10% in the last two reporting periods, and almost 15% of Wendy's float is now controlled by these bearish traders.
Based on average daily trading volumes, it would take almost two weeks for short sellers to cover -- suggesting there's potential for the stock to benefit from a short-squeeze.
Leo Fasciocco, Ticker Tape Digest
Domino's Pizza (DPZ) is primarily a franchised system, operating stores that deliver pizzas; it has 13,800 stores in 85 international markets.
For 2018, analysts are forecasting a robust 49% surge in net to $7.98 a share from the $5.34 the year before. The stock sells with a price-earnings ratio of 28. We see that as attractive for value-growth investors.
Looking out to 2019, the Street expects a 17% increase in net to $9.31 a share from the anticipated $7.98 this year.
Analysts have been lifting their estimates. Profits for the upcoming first quarter are projected to leap 40% to $1.77 a share from $1.26 in the prior year.
The company has topped the consensus estimate the past seven quarters. Going out to the second quarter of 2018, analysts are predicting a 31% gain in net to $1.73 a share from the $1.32 the year before.
Technically, long-term chart shows the stock in a solid long-term up trend holding above its long-term moving average line.
The daily chart shows the stock climbing from $170 back in November to a peak around $220 by December.
The stock then put down a short cup-and-handle base. The recent price breakout above $222 clears the base with a pick up in volume. The breakout was triggered by a favorable quarterly earnings report. Based on a longer-term basis, the breakout clears a 9-month, double bottom base.
The stock's momentum indicators are now strongly bullish. We are targeting Domino's Pizza for a move to $270 off this breakout. A protective stop can be placed near $220. We also see chances for a stock split, which could boost the price.
Tyler Laundon, Wall Street's Best Daily
The best beers can be hard to find. The best beer stocks can be even harder to find. Here is a little guide on where to find them in 2018.
Boston Beer (SAM) is a well-known brewer in Boston, Mass., and has roughly 100 beers, flavored malt beverages and hard cider offerings under the Samuel Adams, Twisted Tea and Angry Orchard brands. The stock was on a slide until mid-2017 when Q2 earnings crushed expectations and money began to flow back in.
Revenue growth was a modest 1.3%, but EPS of $2.35 beat by $0.94. The company followed up the solid Q2 results in Q3, when EPS of $2.78 beat by $0.79 (revenue was down 2.5%).
Positive trends include sales growth in Truly Spiked & Sparkling hard water offerings, as well as Twisted Tea. And there has emerged a storyline that appears good for Boston Beer investors regardless of what happens.
If growth resumes, the stock should do well. If it doesn't, the chance of a takeout goes up! I wouldn't personally invest based on M&A potential as I think founder Jim Koch would like to keep the company independent. But you never know.
Craft Brewers Alliance (BREW) is a small-cap craft brewing company that's had mixed success over the years. The company owns a number of craft brew brands, including Redhook, Widmer Brothers, Kona Brewing, Long Hammer and Omission.
At the moment things appear to be going relatively well with revenue expected to be up 2% to 3% in 2017 and 2018, and EPS expected to jump 180% (to $0.14) in 2017 and 136% (to $0.36) in 2018. There has been some M&A chatter, with Anheuser-Busch InBev (BUD) rumored to be a potential acquirer.
Toronto-listed Brick Brewing (TO:BRB) is a $122 million market cap company and is the largest Canadian-owned craft brewery in Ontario. It owns the brands Waterloo and Laker as well as exclusive Canadian rights to Seagram Coolers, LandShark and Margaritaville.
It's recently finished off an initiative to streamline operations by selling off two brewery facilities, including one in Waterloo in 2014 and, most recently in September 2017, its Formosa facility. The latter is projected to save $600,000 a year.
Through the company's third quarter (ended October 29, 2017), revenue for the year was up 12.8%. Costs have been higher, so EPS has declined from $0.09 in the first nine months of last year to $0.06 this year.
We won't get an update until Q4 results come out (the quarter ended Jan. 31), which will probably be in late-March or early-April. But I suspect that trend should correct now that the Formosa facility is off the books.
Investors have come around to the name over the past couple of months and shares are trading near resistance, suggesting Q4 results could set the stock's trajectory for the rest of 2018.
Toronto-listed Big Rock Brewery (TO: BR) is based in Calgary, Alberta, and has been in the business for three decades. It has a number of beers and ciders that fall under the Big Rock brand. But it's a tiny stock, with a market cap of under $40 million.
Over the last nine months the company has grown revenue by 8.5% to $35.5 million but increased the size of its loss to $-0.13 from $-0.02 per share. The company's margins have been pressured by a changing markup and grant structure in Alberta, which has increased the costs to manufacture beer above a certain volume.